Tag Archives: CDU.LS

Conduril reports 2015 results

Conduril released their annual report for 2015 yesterday. As usual the report is initially only available in Portuguese, but luckily Google Translate is pretty awesome. Unfortunately Conduril’s results for 2015 are not equally great. While revenue only dropped 6% from €208 million to €196 million net income dropped dramatically from €29.5 million to €6.2 million. The company doesn’t provide a real explanation for this. They spend a lot more this year on “External supplies and services”, but no idea why and whether or not is going to be an onetime issue or a permanent change. In addition the positive effect of currency movements was a lot smaller this year, although that was partly offset by a big reversal in the provision for doubtful accounts. If Conduril didn’t have that reversal reported earnings would have been close to zero.

Besides the poor – and unexplained – earnings I found the following noteworthy:

  • Conduril finally started to do some business again in Portugal. In 2015 23% of revenue originated from their homecountry compared to 7% in 2013 and 2014.
  • They loaned €20 million to two Portugese companies that they also own a minority stake in, bringing the total balance to €33.8 million. €20.3 million is outstanding to “SPER – Portuguese Society for Construction and Road Exploration, SA” while “Algarve coast routes, SA” has €13.5 million outstanding.
  • A huge part of their balance sheet continues to consist of Angolan government bonds, now worth €101.8 million. Unfortunately the credit rating of the country was recently downgraded from B+ to B because of the lower oil price, its main export product.
  • In the second half of 2015 the company finally managed to turn some receivables into cash, lowering the “cash conversion cycle” metric from 283 to 223 days.
  • Despite the difficult conditions the backlog is holding up reasonable well, dropping from €450 million at the start of the year to €340 at the end of 2015.
  • They announced a dividend of €0.50/share, just 25% of the €2/share that it paid last year.

While the 2015 results were not very good I think that the company continues to represent a great deal, although an increasingly risky one because of the large credit exposure to Angola. With the stock at €42 Conduril is trading at 66% of NCAV and that is ignoring the €33.8 million in loans to Portugese companies that are classified as non-current assets. If we would include those in the valuation NCAV/share would jump from €64 to €83/share.

The Algarve coast


Author is long Conduril

Annual results: Conduril, Ming Fai, Retail Holdings & Rella

The last week of March was a busy month with several of my portfolio companies releasing their results for 2014. My biggest position is Conduril, and they released their results for 2014 yesterday. As usual the annual report is at the moment only available in Portuguese, the translated English version should follow in a couple of weeks.


Conduril’s performance for 2014 was satisfactory, but there are a couple of clouds in the sky. Their backlog dropped from €750 million at the end of 2013 to just €450 million at the end of 2014, one of the lowest levels in years. Generating free cash flow also proved a problem in 2014. This wasn’t exactly a surprise since the company announced in their interim report that the Angolan government settled a large outstanding receivable with certificates of public debt. But even when we ignore this item we see that working capital is growing while revenues have been shrinking the past years. The good news is that the company announced that it will pay a €2/share dividend this year and that it is still dirt cheap. It’s trading at a P/E ratio of just 4.2x and of P/B ratio of just 0.6x which is a small discount to NCAV.

An updated summary of their financial performance for the past six years is provided in the table below. A large part of the positive differential between other income and other expenses is caused by foreign exchange gains. Probably repeatable for 2015 given the decline of the euro this year, but of course not sustainable in the long-term:

Historical results Conduril (2014 AR update)

Ming Fai International Holdings

Ming Fai also reported results for 2014. My thesis for the company is based on the fact that the profitability of their core business is ‘hidden’ by two loss-making divisions, but since one of these divisions has been shut down mid-2014 I expected that reported results would soon improve. Reported net income did indeed jump by 67% in 2014 while the dividend was also increased by 29%. While this is, of course, good news there was also some bad news buried in the financials. The profitability of their crown jewel, the amenity segment, decreased while losses in the retail segment only got bigger:

Segment details Ming Fai (2014AR update)

Retail Holdings

Retail Holdings also reported their 2014 results yesterday. Results for 2014 weren’t particularly impressive, but the company continues to trade at a 40% discount to NAV, announced another $1/share dividend while the long-term strategy is still to monetize the value of its assets. It’s for sure taking a long time, but we get paid to wait and intrinsic value can grow in the meantime. The chairman of the company is pretty optimistic:

I remain optimistic about 2015 and later years. I anticipate a marked improvement in Sri Lanka’s performance, reflecting accelerating economic growth, helped by lower oil prices, an improving agriculture picture, an increase in government salaries, and an uptick in consumer confidence, as well as the launch of a major new financial services initiative. In Bangladesh, a lot will depend on political developments, but the Company’s performance should improve in any case, particularly in the second half of the year, as the Company’s new refrigerator factory begins production, and other improvements now under way impact results. Pakistan and Thailand’s performance should also improve as new initiatives impact results. I expect India to continue to grow strongly. Revenue and profits in 2015 and later years will also benefit from the rollout of the new Cambodian business and from the Company’s ongoing investment in new and renovated shops and in new products, brands and services.

The holding company currently consists of the following assets:

Retail Holdings NAV (2014AR update)

What I also found interesting was the following paragraph in the annual report:

During 2014, the Company returned to equity $49,000 of the 2009 distribution, representing unclaimed distributions of non U.S. shareholders; an additional $13,000 was escheated. During 2013, the Company returned to equity $175,000 of the 2008 distribution, representing unclaimed distributions of non U.S. shareholders; an additional $3,000 was escheated.

I’m not familiar with the relevant laws in the US. I’m wondering if shareholders that don’t claim their dividends lose the right to receive them after 5 years? And what will happen if the company eventually liquidates? It appears that approximately 5% of dividends go unclaimed, and if this eventually accrues to other shareholders it could be a nice bonus?

Rella Holding

Since Rella announced that they would sell their stake in Aller and liquidate it doesn’t really matter what the latest results are. Despite that fact, the annual report did contain a couple of interesting items. The company increased the estimated liquidation proceeds from 77DKK/share to 77.5DKK/share. What I also found noteworthy is that the company renewed their share repurchase authorization. I don’t know if they are going to use it, but it would allow Rella to bet on its own liquidation. Could generate a bit of value for remaining shareholders.


Long Conduril, Ming Fai and Retail Holdings. No position in Rella anymore.

Reduced my position in Conduril

I have been reducing my position in Conduril this month because I think the risk/reward is at the moment not as attractive as it was earlier this year. This despite the fact that the share price declined with more than 25% from a high of €88/share to the current €65/share. The main reason is the sharply declining oil price, and the possible effect that it will have on Angola. Conduril is generating roughly 50% of its revenues from Angola while the country relies on oil for approximately 80% of its tax revenues. With oil below $60/barrel they have a problem:

fitch-report-on-oil-vulnerabilitiesI’m not someone who focuses on macro factors with my investments, but there is a difference between making predictions and recognizing reality as it is. And when a lot of future tax revenue is gone it isn’t exactly a stretch to assume that there will be a lot less money available in the coming years for stuff like public infrastructure: the kind of work Conduril does. It also increases Conduril’s credit risk on its outstanding receivables.

I don’t know if this realization is driving the decline behind Mota-Engil Africa’s share price. I called this company a good comparable to Conduril just two weeks ago because it’s active in the same sector and it is also getting roughly 50% of its revenues from Angola (it does however have a more leveraged balance sheet). When you see that Mota-Engil Africa is down more than 50% since its listing in Amsterdam three weeks ago the recent decline in Conduril’s share price suddenly doesn’t look that bad:

CDU vs MEAFR share price

Despite the sales Conduril is still my biggest position, just not as big as earlier this year.


Author is long Conduril, no position in Mota-Engil Africa


Mota-Engil Africa debuts on Dutch stock exchange

Last week Mota-Engil listed the shares of its African subsidiary on the Euronext stock exchange in Amsterdam. The company cancelled an IPO in London earlier this year and has now spun off 20% of the African subsidiary to shareholders. Mota-Engil wanted to IPO a part of the subsidiary at a price between €11.50 and €14.50. After opening at ~€11.50 last week the stock is now trading a bit below this range at €10.50 giving it a €1 billion market capitalization.

The valuation of Mota-Engil Africa is very interesting because I think it’s a very good comparable to Conduril. Conduril generated 93% of its revenue in Africa the past year, and they are for a large part active in the same countries. Mota-Engil Africa is active in the following countries:

Mota-Engil Africa activities

Both companies are big in Angola. Angola accounted for more than 50% of Mota-Engil Africa’s revenue in 2013 and Conduril is getting a similar percentage of its revenue from Angola. Conduril is also active in Zambia, Malawi, Mozambique and Cape Verde. Mota-Engil Africa is a lot bigger than Conduril though. They don’t even mention the company as a competitor in the listing prospectus when discussing the competitive landscape in Angola:

The Angolan construction industry had 44 major international contractors in 2011, however the industry is dominated by companies from Portugal, Brazil and China. Portuguese and Brazilian companies (or companies with ties to Portugal and Brazil) have leveraged strong cultural ties to build an established presence in the country with the Group, Teixeira Duarte, Somague Engenharia and Soares de Costa from Portugal and Odebrecht and Camargo Correa from Brazil winning the majority of new projects up for tender. In respect of Chinese firms, the model is slightly different, where China has acquired Angolan resources in exchange for infrastructure investment. Furthermore, extensive credit lines have been extended to Angola, although these are specifically to fund projects built by Chinese companies. As of 2011, there were 22 Chinese construction companies present in Angola.

While I do think that Mota-Engil Africa is a good comparable to Conduril the two companies are certainly not identical. Mota-Engil Africa is not only a lot bigger, but has also shown faster growth in the recent years as illustrated in the table below:

Revenue growth: Conduril versus Mota-Engil Africa

It also looks like Mota-Engil Africa will be able to continue its fast growth in the near term since they have been awarded a project worth US$3.5 billion in Cameroon (conditional upon financing being secured). Their biggest contract is currently the almost completed Malawi Nacala Corridor Railway Corridor that is worth €691 million. Because of the growth difference Mota-Engil Africa should trade at a premium compared to Conduril. But this much?

Valuation metrics Mota-Engil Africa versus Conduril

I don’t think so. A big project is nice for Mota-Engil, but it’s probably not sustainable growth since it will probably be extremely difficult to replace their backlog once it’s completed. With a P/E-ratio of 10.84 the market is presumably also not expecting growth miracles from Mota-Engil Africa. So it should be a reasonable comparable, and possibly undervalued itself given where it is trading compared to the proposed IPO range and the relative low P/E-ratio given its growth.


Author is long Conduril, no position in Mota-Engil Africa

Conduril 2014 interim results

Conduril reported interim results for the first half of 2014 at the end of September. The business performed well. Revenue increased with 9.7% compared to the same period previous year while earnings increased with 6.6%. It’s a bit questionable if the company will be able to continue to grow revenues in the near future since the backlog decreased from €750 million at the end of the year to €600 million now. An overview of Conduril’s historical earnings:

Historical earnings Conduril (2014 interim report)What we see is that EBITDA decreased despite the growth in revenues, but earnings went up anyway thanks to a lower tax rate. Conduril has been paying lower taxes since the second half of 2013 because it is no longer double taxed on earnings from Angola: lowering the effective tax rate from more than 50% to a more normal ~30% rate. The fact that the nominal tax rate in Portugal was lowered from 25% to 23% also didn’t hurt.

The most significant development is however not found on the earnings statement, but on the balance sheet. A new entry is a €74 million asset classified as held for trading while outstanding debt increased with an almost equal amount (€67 million). These assets are certificates of public debt that Conduril received from the Angola government for past due receivables. Since Conduril has a large amount of receivables on its balance sheet this is both good and bad news. It shows that Conduril isn’t always paid on time for the public works they construct in Africa. But it also shows that the receivables are backed by the state so that the credit risk remains acceptable. Moody’s recently upgraded Angola’s credit rating from Ba3 to Ba2 with a positive outlook. Not the most solid rating, but not bad either. So don’t think it’s a big deal that it will take a bit more time to convert some of the receivables into cold hard cash.

Historical Conduril balance sheet (2014 interim report)Disclosure

Author is long Conduril